Mt ncrease in LPG imports rom the United due to the Shale Revolution Overall imports decrease below one million tonnes a month YANAGSAWA Akira, Senior Economist, Manager Energy Demand, Supply and Forecast Analysis Group The Energy Data and Modelling Center LPG imports decrease to the levels o about 3 years ago mports o liqueied petroleum gas (LPG) are decreasing (Figure 1). Ater rising to 13.33 million tonnes in FY212, the volume o LPG imports dropped to 11.61 Mt in FY213, alling below the 1 Mt/month line. This is the lowest level in almost 3 years, even lower, albeit slightly, than FY29 aected by the Lehman shock. Figure 1 LPG imports 1.3 1.2 1.1 1. mports 12-month moving average.9 23 24 25 26 27 28 29 21 211 212 213 214 Source: Ministry o Economy, Trade and ndustry Petroleum Statistics This is not because imported LPG is being pushed out by increased production o LPG by domestic reineries. n act, the output o reineries is levelling o in the mid-term due to the gradual decline in crude oil throughput. The decrease in LPG imports is due to alling demand rather than competition among suppliers. n 213, the demand decreased by 1.16 Mt year-on-year to 15.74 Mt. This is 17% or 3.32 Mt less than a decade ago (Figure 2). The true cause o this trend is energy saving and uel switching in the residential and commercial, and industrial sectors. The gradual reduction o LPG-uelled vehicle leets, particularly taxis, and the switching o city gas material have also contributed to this decrease. LPG or power generation increased to.86 Mt due to the intensive operation o thermal power plants caused by the shutdown o 1
Mt nuclear power plants ater the Great East Japan Earthquake (peaking at 1.56 Mt in 212). However, this was nowhere near enough to cancel out the decrease or other uses. Figure 2 Contribution to the change in LPG demand (23-213) 2 19 18 19.1-1.4 17-1.1 16 15 -.5 -.5 -.1 +.4 15.7 14 13 23 Residential/ ndustrialautomobiles City gas Commercial Chemical material Electricity 213 Source: Estimated based on the inormation rom Japan LP Gas Association mports declining rom the Middle East, rising rom the United Due to the all in imports caused by decreasing demand, imports rom most o major import sources, particularly the Middle East countries, ell below that o the previous year (Figure 3). n 213, the imports rom Qatar, the United Arab Emirates, Saudi Arabia and Kuwait all dropped by.4 Mt to.6 Mt rom the previous year (dependence on the Middle East dropped to 78% rom 84%). Figure 3 LPG imports (major suppliers) Qatar 3.42 3.91 3.89 United Arab Emirates 2.92 2.97 3.36 Saudi Arabia Kuwait United.4.41.86 1.5 1.38 1.51 2.12 1.92 1.91 213 212 211 Australia.69.84.99 1 2 3 4 Source: Ministry o Economy, Trade and ndustry Petroleum Statistics Mt 2
$/t Under such circumstances, the only exception was the imports rom the United, which increased. mports rom the United, which were negligible in 211, soared to.86 Mt in 213 due to the launch o term-based imports, and are expected to exceed 1.8 Mt by 216. The United is now the largest LPG exporter to Japan ater the Middle East countries. The share o the United expanded to 7%, moving up rom 11th to ith place. Behind this result is the Shale Revolution, which has made the United one o the world s largest LPG exporters. Expectations or cheap LPG due to the Shale Revolution Hopes are rising or purchasing cheap LPG rom the United, even ahead o liqueied natural gas (LNG). n 213, the import CF price o LPG rom the United was cheaper than that rom other major suppliers or both propane and butane (Figure 4). Particularly remarkable was the low price o butane. normation such as this could attract the attention o the Japanese who are struggling with soaring energy costs. Figure 4 LPG import CF prices (213, major suppliers) 96 94 92 896 95 926 921 911 918 914 917 942 921 924 88 86 848 84 82 United Australia United Arab Emirates Qatar Kuwait Saudi Arabia Source: Estimated based on Ministry o Finance Trade Statistics o Japan However, care is needed when interpreting the price o LPG rom the United, particularly butane. This is because butane rom the United was imported only at a certain period o the year (Figure 5). n 213, the LPG price was higher at the beginning and the end o the year and was lower towards the middle. As butane rom the United was imported only rom May to October when the price was low, it appeared even cheaper than it was when compared to other suppliers in terms o annual average price. The average import price was lower similarly or non-us suppliers rom May to October at $891/t, compared to the year-round average o $936/t. 3
mport price ($/t) mport price ($/t) Figure 5 CF prices and import volume o LPG rom United 1,2 1,1 1, 7 6 1/213 7/213 1/214 3 25 2 15 1 5 mport volume rom United (kt) S S 1,2 1,1 1, 7 6 1/213 7/213 1/214 3 25 2 15 1 5 mport volume rom United (kt) mport volume rom United mport price rom others mport price rom United Source: Estimated based on Ministry o Finance Trade Statistics o Japan While the imports o propane rom the United also varied among months with no or low imports, the reason or its cheapness is not exactly the same as butane. Towards the end o 213, the import price o Middle Eastern propane soared as Saudi Aramco raised its Contract Price (CP) at once to the highest level ever (November: $875/t, December: $1,1/t). At around the same time, the price o propane at Mont Belvieu, the United also soared due to the harsh cold wave. However, the rise in the import price o propane rom the United remained under control due partly to price breakdown. Beneits o importing LPG rom the United? The expansion o the Panama Canal 1 scheduled or 215 is expected to lower the cost o shipping LPG rom the United to Japan. Even without this beneit, importing LPG rom the United has, at least so ar, provided a certain amount o economic beneits, estimated at a saving o as much as $35 million in imports 2 in total since January 213 (Figure 6). 3 1 Due to the conrontation between the Panamanian government and the consortium o construction companies over the budget overrun (December 213 to February 214), the construction is not due to be completed until the end o 215. 2 Compared to the estimated import value i LPG was not imported rom the United. 3 As the transportation lead time to Japan diers or each supplier country, note that there might be a time lag in the month o arrival o LPG in Japan, when the export FOB price is applied. This time lag could aect the result o calculation i the target period is not suiciently long. 4
$ million Figure 6 Estimated saving by importing LPG rom the United (cumulative) 4 35 3 25 2 15 1 5 1/213 4/213 7/213 1/213 1/214 Note: Cumulative since January 213. Calculated by Volume o LPG import rom the United (mport price rom the others - mport price rom the United ) Reducing the import volume and adding the United, which has very low geopolitical risk, as a major supplier would help improve security in terms o supply stability. Going orward, Japan is expected to add to these achievements and ully enjoy the beneits o the Shale Revolution by attempting to reduce the import price o LPG rom the United. At the same time, Asian consumer countries including Japan are expected to use this opportunity to gain bargaining power or the pricing o CP-based LPG, which is now in the hands o the producers. Contact: report@tky.ieej.or.jp 5